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Untapped potential in Africa’s agricultural insurance market: Faber

2nd June 2023 - Author: Kassandra Jimenez-Sanchez

Africa’s agricultural insurance market has a large untapped potential for non-life insurers due to its low penetration and it is key to advancing food production security in the continent, according to the latest edition of the Africa Insurance Pulse on food security and agricultural insurance.

Sub-Saharan_Africa_definition_UNThe global agricultural insurance market has grown significantly due to the increasing need for risk management tools in agriculture. According to Swiss Re, the global agricultural insurance market will be valued at $46 bn in 2020 and is expected to reach $80 bn by 2030, growing at a compound annual growth rate (CAGR) of 5.7%.

The agricultural insurance market in Africa has experienced this growth; which has been driven by increased demand from farmers for risk management solutions and the development of new technologies and risk models.

“Despite the economic importance of the agricultural sector to many African countries the agricultural insurance market in Africa is underdeveloped, with low penetration and a limited range of products,” the report highlighted.

Adding: “In 2020, African agricultural insurance premiums were estimated at $320m, representing 1.6% of total African non-life insurance premiums of USD 19,730 million. Despite being slightly higher than the global share of 1.3%, there is a large untapped potential.”

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Agricultural insurance coverage varies widely from country to country, leaving most smallholder farmers uninsured. For them, agricultural insurance secures livelihoods and primarily offsets the risks associated with weather variability, Faber analysts explained

Only 1% of smallholder farmers in Africa were insured in 2016/2017, compared to more than 15% in Latin America and nearly 50% in Asia, Faber analysts noted.

Experts emphasised the key role the African re/insurance sector has to play in addressing food security in the continent.

Jean Baptiste Ntukamazina, Secretary General of the AIO, said: “Agricultural insurance is critical to promoting food security in Africa. It acts as a safety net for farmers and food producers by transferring the financial risk of production or distribution to the insurance sector.

“This stabilises food production and increases resilience to disasters. In addition, insurance provides incentives for sustainable practices such as conservation agriculture and crop diversification, thereby improving food security. Insurance also helps facilitate investment in new technologies and infrastructure, ultimately increasing agricultural productivity.”

To further improve food security in Africa, experts noted, African governments should provide financial support for the development of agricultural insurance markets in emerging economies.

In addition to premium subsidies, governments can support the sector by improving the accuracy of data on the sector, enhancing financial education or providing catastrophe reinsurance.

“Besides the government, other institutions, such as banks, input suppliers or community organisations may serve as aggregators or enablers of agricultural insurance by providing agricultural extension services, including training, credit, distribution of seeds, fertiliser or herbicides, organising cash crop exports or facilitating access to finance,” the report stated.

“Another important factor in promoting the sustainable development of agricultural insurance is the need for a regulatory framework that encourages growth and innovation in the sector. Such a framework should promote flexible product design, capacity building and public awareness, risk-based pricing, clarity and consistency in regulation, and cooperation among stakeholders to support the growth and sustainability of the sector,” experts concluded.

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